Custom Audiences vs Lookalike Audiences: Examples, Costs, and Use Cases
Custom Audiences vs Lookalike Audiences: Examples, Costs, and Use Cases
Introduction
Custom audiences and lookalike audiences are foundational tools in modern social media advertising. While they are often grouped together, they play very different roles within a campaign. Custom audiences and lookalike audiences are two of the most powerful targeting tools available in social media advertising. While they are often discussed together, they serve very different roles within a campaign and deliver value at different stages of the marketing funnel.
This guide is designed to help you decide which audience to use, when to use it, and why — using real examples, cost tradeoffs, practical use cases, and performance considerations. This guide goes beyond surface-level definitions to explain how these audiences work in practice, how they affect cost and scale, and how advertisers use them across real-world campaign scenarios. The goal is to help you choose the right audience type based on data availability, budget, and business objectives.
By the end of this guide, you will be able to choose your applicable audience strategy based on your available data, budget size, and campaign goals.
If you’re looking for a quick overview before diving deeper, you may want to start with our simple explanation of custom audiences vs lookalike audiences.
Understanding Custom Audiences in Depth
Custom audiences are built from first-party data — information that comes directly from your business or brand interactions. Custom audiences are built from first-party data, meaning they are created from real interactions with your brand. For a detailed breakdown of how these audiences are constructed across platforms, see our guide on what social media custom audiences are and how they work.
Examples include:
-
Website traffic
-
Customer email lists
-
App activity
-
Engagement with ads or posts
Because these audiences are based on real interactions, they tend to deliver higher relevance and stronger performance for conversion-focused campaigns. Because these users already recognize your brand, custom audiences are especially effective for retargeting, conversions, and retention-focused campaigns.
However, custom audiences are limited by size and data freshness.
Understanding Lookalike Audiences in Depth
Lookalike audiences are generated by platforms using algorithmic modeling. The platform analyzes a source audience and identifies new users who behave similarly.
Key factors that influence lookalike performance include:
-
Quality of the source audience
-
Size of the source audience
-
How recently the source data was collected
-
Similarity percentage selected
Lookalikes allow advertisers to scale, but they introduce more variability in performance. Lookalikes are primarily used for prospecting and scaling, allowing advertisers to reach new users who are statistically likely to resemble their best customers or most engaged users.
Custom Audiences vs Lookalike Audiences: Data Source Comparison
Custom audiences rely on deterministic data — users who explicitly interacted with your brand. Lookalike audiences rely on probabilistic modeling.
This creates a tradeoff:
-
Custom audiences offer more control and precision
-
Lookalike audiences offer more reach and automation
Understanding this distinction is critical when planning budgets and expectations.
Funnel Stage Comparison
Different audience types perform best at different stages of the funnel.
-
Awareness: Lookalike audiences
-
Consideration: Lookalikes and broad targeting
-
Conversion: Custom audiences
-
Retention: Custom audiences
Using the wrong audience at the wrong stage often leads to poor performance.
Real-World Examples of Custom and Lookalike Audiences
Ecommerce Acquisition Campaigns
Ecommerce brands often use lookalike audiences based on past purchasers to acquire new customers. Once users visit the site or add products to their cart, custom audiences are used to retarget those users and drive conversions.
Lead Generation Campaigns
In lead generation, lookalike audiences help scale top-of-funnel traffic, while custom audiences retarget users who started but did not complete a form or signup process.
Subscription and SaaS Funnels
Subscription-based businesses often build lookalikes from high-value or long-term customers. Custom audiences are then used for onboarding, upselling, and renewal campaigns.
Local or Regional Businesses
Local businesses rely heavily on custom audiences such as website visitors or past customers, with smaller lookalike audiences used selectively to expand reach within a defined geographic area.
Cost and Scale Tradeoffs
Custom audiences generally have:
-
Lower cost per conversion
-
Smaller reach
-
Faster saturation
Lookalike audiences generally have:
-
Higher CPMs
-
Larger reach
-
More room for scaling
As budgets increase, many advertisers transition from custom audiences to lookalikes to maintain delivery.
CPM Differences Between Audience Types
Custom audiences often deliver lower cost-per-conversion but may have higher CPMs due to limited size. Lookalike audiences usually have higher CPMs but provide significantly more reach.
Budget Efficiency at Different Spend Levels
At smaller budgets, custom audiences tend to outperform because of their relevance. As spend increases, performance may plateau, making lookalike audiences necessary for continued delivery.
When Scaling Causes Performance Drop-Off
As lookalike audiences scale, relevance can decrease, leading to higher costs and lower conversion rates. Monitoring performance by similarity level and refreshing source data helps mitigate this.
Why Source Audience Quality Determines Lookalike Performance
The quality of a lookalike audience is directly tied to the quality of the source audience used to create it.
Key factors that matter more than size include:
-
Clear conversion signals
-
Consistent behavior patterns
-
Recency of activity
-
High-value or repeat users
Event-based source audiences, such as purchasers or completed leads, typically outperform list-based sources built from passive engagement.
Accuracy, Performance, and Audience Decay
Custom audiences can lose effectiveness over time if data is not refreshed. Lookalike audiences depend on ongoing algorithm updates and source quality.
Refreshing source audiences and testing multiple lookalike variations helps maintain performance.
Privacy and Compliance Considerations
Both audience types must comply with platform policies and data privacy regulations.
Best practices include:
-
Using consented data
-
Following platform data handling rules
-
Avoiding sensitive personal attributes
Privacy-safe audience construction is increasingly important for long-term performance.
Platform Differences Across Social Media Networks
Different platforms interpret audience signals differently. A lookalike audience on one platform may behave very differently on another.
Testing and optimization are essential when expanding across platforms.
Audience targeting is just one component of a broader advertising strategy, and understanding how it fits within campaign planning, creative, and measurement is essential. You can explore related guides in our social media marketing resource hub.
Decision Table: Which Audience Should You Use?
| Goal | Recommended Audience |
|---|---|
| Retarget visitors | Custom audience |
| Re-engage customers | Custom audience |
| Scale acquisition | Lookalike audience |
| Grow awareness | Lookalike audience |
Advertisers who want to move quickly often use pre-built audience segments for common campaign goals. For example, Facebook custom audience segments for consumer behaviors, interest-based audience segments, and purchase-intent audience segments can help streamline setup and testing.
Frequently Asked Questions
Can you use both audiences together?
Yes. Many campaigns use custom audiences for retargeting and lookalikes for prospecting. Using both together allows advertisers to target different stages of the marketing funnel.
Which performs better overall?
Neither audience type performs better in all cases. Performance depends on goals, data quality, budget, and campaign structure.
Do lookalikes replace interest targeting?
Lookalike audiences often outperform interest targeting but do not fully replace it. Many advertisers test both to determine which performs best.
How often should audiences be refreshed?
Custom audiences should be refreshed regularly, especially when based on time-sensitive data such as website visits or recent purchases.
Are custom audiences always small?
Custom audiences are limited by available data, but high-quality data often matters more than size.
How large should a source audience be for lookalikes?
While platforms often recommend minimum sizes, source audience quality is more important than raw size. Highly relevant audiences often outperform larger, generic ones.
When should you stop using a lookalike audience?
If performance declines consistently despite testing different similarity levels and refreshing source data, it may be time to pause or rebuild the lookalike audience.
Final Recommendation
Custom audiences and lookalike audiences work best when used together as part of a broader audience system. Understanding their differences allows you to deploy each where it delivers the greatest value.